Wednesday, February 22, 2012

Back on Jan. 3, we pointed out that 235-237 E. 14th St., which houses the IHOP, was on the market for $14.5 million. The Massey Knakal listing noted that IHOP was paying $45,833 per month on a 10-year lease.

Just over a year after buying a bland, mixed-use building on the border of the East Village for less than $4 million, retail-focused landlord Ashkenazy Acquisition is ramping up efforts to sell that location, which is home to a popular International House of Pancakes restaurant, for $14.5 million. That extraordinary, potential growth in value at 235 East 14th Street, between Second and Third avenues, is due to the long-term IHOP lease inked at the building last year, property sales marketing material shows. But that valuable lease was a bit of an inside deal, because Ashkenazy Acquisition Chairman and CEO Ben Ashkenazy is a managing member of the company that owns the IHOP franchise rights in the tri-state area.

So to review, as a friend of EV Grieve did for us. Buy an undervalued asset. Place a retail client that you own the rights to in the space with a long-term lease. Then turn around and sell the building for more than triple what you paid for it. Not a bad day's work...

8 comments:

This is how you make money with a pencil. This building isn't 3X better than when the current owner bought it. He's using the IHOP lease to drive up the value.

Normally, you would assume that a lease with a national chain would be like a license to print money but if the property owner is also involved with the leasee, I'd be concered. IHOP isn't as valuable as a McDonalds franchise. My guess is that when EV'ers get tired of industrial pancakes, the IHOP shuts down. The former property owner is well-insulated from the operating entity and walks away with his profits from the sale of the builing intact.

How "we pay the price" is something I'd love to hear, considering that this franchise has likely created jobs and brought in much needed tax revenues (both in sales and through increase property value when the building sells). Pretty much a Rooty Tooty Fresh 'N Fruity win for all of us.

As to it being "fishy", there's plenty of sensible reasons why a franchise owner might do this. For one, it may be the best and easiest way to develop the space he needed to launch his IHOP franchise. There's no landlord negotiations to deal with, such as hassles over renovations. Plenty of companies have built or acquired and renovated buildings to suit their purposes, then sold off the property to get a return on their capital. That's a pretty sensible practice if businesses want to remain focused on their core practice and not be eternally distracted with building management issues.

I wouldn't hold your breath waiting for this IHOP to close. Word is it's a hipster darling, since they enjoy it "ironically" much like the way they drink PBR. Many people said it was a passing phase in the late 90s in Brooklyn; look at it now.... it's worse.

It's college kid friendly. That's how we pay the price. The more crap businesses with an 18-22 year old clientele that move into the neighborhood, the more others will follow. Then landlords raise the rents as they did with the shop thats now Five Napkin Burger, forcing them to move. Then eventually the street will be nothing but chains and bank branches. Thanks, but no thanks. It's what happens when you cater to one group of people, and the lowest common denominator at that. Transients.

And I don't know about you but I am certainly not lining up for a $7/hr waitress job so no benefit there either.

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